The measures taken by the current government in an attempt to minimise the severity and length of the current downturn are simply unprecedented in scope or scale. Their reach into markets, particularly financial, has many serious implications. For example, the state-sanctioned merger of Lloyds and HBOS created a titan of the consumer finance sector, with 28% of the UK mortgage market and 35% of savings accounts. However, the government ignored this oligopolistic evidence and overruled the concerns of the Office of Fair Trading that this would cause a "substantial lessening of competition", making the argument that the survival of all the major banking institutions was essential to avoid a 1930s style depression.
However, government intervention is now becoming more prevalent across other sectors which are surely not vital to Britain’s economy. For example, Britain lost comparative advantage in mass production of cars many years ago: the presence of plants such as Nissan’s and Honda’s is simply due to existing tax breaks and subsidies. Yet, the Government appears to be unwilling to face up to the harsh new market realities, offering the industry up to £2.3 billion of loans. Widespread governmental intervention, in providing financial assistance and circumventing competition laws, distorts the free market, meaning that we, the consumer, ultimately suffer. It negates our fundamental free-market liberty to decide through our purchasing power which companies thrive and which fail, and which products and services are offered.
Unprecedented state borrowing also creates a more long-term implication for our liberty. This year the government will borrow £175 billion, and national debt will rise to 79% of GDP by 2013-14. This debt ‘time bomb’ led Matthew Elliott of the Taxpayers' Alliance, to say that "This commits taxpayers to a terrifying amount of debt that will burden ordinary families for decades to come." Public service spending will be squeezed hard, but tax rises in both progressive and regressive taxes are inevitable. These diminish our liberties, as they decide how a large proportion of our income will be spent, and therefore leave us less money which is ours to spend as we choose. Therefore, the compulsion to pay for the government’s reckless spending and failure to predict the downturn is particularly unpalatable, and the scale of the inevitable tax rises represents a serious long-term threat to our freedoms as economic agents.
This article is written by James Freeland, winner of The Young Writer on Liberty 2009.